Sequential procurement with subcontracting

Ian L. Gale, Donald B. Hausch, Mark Stegeman

Research output: Contribution to journalArticle

19 Scopus citations

Abstract

Two symmetric sellers are approached sequentially by fragmented buyers. Each buyer conducts a second-price auction and purchases from the seller who offers the lower price. Winning an auction affects bidding for future contracts because the sellers have nonconstant marginal costs. We assume that the sellers are completely informed, and we study the unique equilibrium that survives iterated elimination of weakly dominated strategies. If subcontracting between the sellers is impossible, the final allocation of contracts is generally inefficient. If postauction subcontracting is possible, the sellers can be worse off, ex ante, than when subcontracting is impossible.

Original languageEnglish (US)
Pages (from-to)989-1020
Number of pages32
JournalInternational Economic Review
Volume41
Issue number4
DOIs
StatePublished - Nov 2000
Externally publishedYes

ASJC Scopus subject areas

  • Economics and Econometrics

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